BUSINESS
08/07/2011 10:32 pm ET | Updated Oct 07, 2011

Asian Markets Slip On U.S. Credit Downgrade

Markets in Asia, the Middle East and the South Pacific bore a modest retreat Sunday night as global investors reacted to a historic downgrade of the United States’ credit rating.

International markets trembled over the weekend following an unprecedented downgrade of the United States' sovereign credit rating by the agency Standard & Poor's. Analysts had feared that the downgrade, in combination with the spiraling European debt crisis, could send overseas investors into a panic and undermine the strength of the global economy.

Standard & Poor’s lowered the United States' rating one notch Friday evening, from AAA to AA+, the first time the U.S. has been given a rating of less than triple-A.

The downgrade occurred during a time of already high anxiety among U.S. investors, as sagging GDP and an underwhelming labor market have contributed to fears that the economy may be heading back toward recession.

As of 11 p.m. EST on Sunday, Japan’s Nikkei index had fallen 1.3 percent to 9,178.03, a drop of 121.85 points. Hong Kong’s Hang Seng was down 3.71 percent at 20,169.41, while the South Korean composite index KOSPI had fallen 3.01 percent to 1,885.27.

Australia’s S&P/ASX 200 index slipped 1.2 percent to 4,055.80, while New Zealand’s NZX 50 declined 2.49 percent to 3,194.82.

In the Middle East, Israel’s TA-25 market fell 7 percent to close at 1,074.27, its biggest decline since 2000. Egypt’s EGX30 fell 4.2 percent. Other markets showed more measured losses: the Abu Dhabi Securities Exchange General Index fell 2.5 percent, while Dubai’s exchange closed 3.7 percent down.

The Saudi Arabian stock exchange, the largest in the Arab world, plunged 5.5 percent on Saturday but remained essentially unchanged on Sunday.

The S&P 500 has declined 12 percent over the past two weeks, including during a tense period when the U.S. government was gridlocked in negotiations about how to reduce the federal debt and whether to extend the Treasury's borrowing authority.

On Thursday, two days after lawmakers resolved their negotiations and the day before a major economic report, the Dow fell 513 points, its worst day since 2008.

Crude oil futures fell as much as 3.7 percent on the New York Mercantile Exchange this weekend, a sign that the downgrade has investors jittery. But Standard & Poor’s decision had been telegraphed well in advance, and many Wall Street analysts say they don’t expect a violent market reaction when trading opens on Monday, according to The Wall Street Journal.

If anything, analysts say, the real threat to market stability comes from the debt crisis in Europe, where Italy and Spain are now facing the possibility of default.

Moody’s and Fitch, the other two leading rating agencies, have not revised their AAA rating for the United States, though both have recently warned that a downgrade is possible if Washington does not take steps to address the federal deficit.

A Standard & Poor’s director told ABC on Sunday that the chances of a further downgrade are one in three.

In spite of the S&P downgrade, few on Wall Street are expecting investors to pull out of Treasuries on a large scale, since the bonds are still seen as relatively safe.